The New Zealand dollar may break through its key 84.50 US cent support level as investors exit the kiwi on concern a significant drop in global dairy prices will weigh on economic growth, amid increasing demand for the greenback.
The kiwi tested its 200-day moving average of 84.50 US cents overnight but failed to break through. The local currency fell to 84.68 US cents at 8am in Wellington, from 85.21 cents at 5pm yesterday. The trade-weighted index dropped to 79.41 from 79.76 yesterday.
The US dollar index, which measures the greenback against a basket of currencies, jumped to its highest in 10 months, buoyed by better economic data and demand for safe haven assets after Russian President Vladimir Putin ordered a response to US and European sanctions over Ukraine. The New Zealand dollar was the worst performing major currency after dairy product prices slumped 8.4 percent to the lowest level since October 2012 in Fonterra Cooperative Group's GlobalDairyTrade auction early this morning.
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"There was some notice paid to the further dairy price fall, quite a significant fall, however most of the kiwi fall last night was to do with global risk aversion and US dollar strength rather than local factors," said Imre Speizer, Westpac Banking Corp senior market strategist. "The downside is the vulnerable one on the day, expect 84.50 to give way."